There is also exemption if the relevant statement
is from an official document and also if the person
who acquired the securities knew of the defect in the
particulars.
Offers of unlisted securities
Offers of securities on the Alternative Investment
Market are governed by the Public Offers of Securities
Regulations 1995 (SI 1995/1537). These are not con-
sidered in any detail in this text which is intended for
students and not would-be specialists in the field of
company flotations. In any case, there are no great dif-
ferences between the form and contents of a prospectus
under the regulations and under the Financial Services
and Markets Act 2000. In addition, the main learning
requirement in general business law – who is respons-
ible for the prospectus and what happens if it is mis-
leading? – is covered by provisions in the regulations
which again show no great difference from the rules
applying to a Stock Exchange prospectus or Listing
Rules, which we have already described.
The remedy of rescission
The main remedy for loss resulting from a misstatement
in a prospectus is, as we have seen, damages based either
on breach of a statutory duty under the Financial
Services and Markets Act 2000 (or the Public Offers of
Securities Regulations 1995) or the Misrepresentation
Act 1967, or at common law under the case of Hedley
Byrne which laid down the principles of liability for
negligent misstatements.
The remedy of rescission involves taking the name of
the shareholder off the register of members and return-
ing money paid to the company by him. This is against
the modern trend because it goes contrary to the prin-
ciple of protection of the creditors’ buffer which is the
major purpose of the many statutory rules relating to
capital maintenance.
The modern trend is to leave the shareholder’s capital
in the company but allow him a remedy for money com-
pensation if the shares are less valuable because of the
misstatement against those who were responsible for the
misstatement such as directors or experts.
The cases which are illustrative of the remedy of rescis-
sion are rather old and are not referred to here. Suffice it
to say that in order to obtain rescission the shareholder
must prove a material misstatement of fact, not opinion
(the principles in the Hedley Byrne case cover actions for
damages for opinions), and that the misstatement induced
the subscription for the shares. The action can only
be brought by the subscriber for the shares under the
prospectus. It is thus less wide than the claim for money
compensation under s 90(1) which, as we have seen,
seems to extend to subsequent purchasers in the market.
The right to rescind is a fragile one, being lost unless
the action is brought quickly; or if the contract is
affirmed, as where the shareholder has attended a meet-
ing and voted on the shares; or where the company is in
liquidation or liquidation is imminent.Membership
Becoming a member
A person may become a member of a company:
1 By subscribing to the memorandum of association.
Membership commences from the moment of subscrip-
tion. On registration of the company the names of the
subscribers (or subscriber in the case of a one-person com-
pany) must be entered in the register of members (s 112).
They are, however, members without such an entry.
2 By agreeing to become a member and having his
name entered on the register of members. Actual entry
on the register is essential for membership, which com-
mences only from the date of entry. A person may show
agreement to become a member:
(a) by obtaining shares from the company, by applying
for them as a result of a prospectus (public company),
or following private negotiation (private company);
(b) by taking a transfer from an existing member fol-
lowing a purchase or a gift of the shares.Minors
A minor may be a member unless the articles forbid this.
The contract is voidable, which means that the minor
can repudiate his shares at any time while a minor and
for a reasonable time after becoming 18. He cannot
recover any money paid on the shares unless there hasPart 2Business organisations